Launch to Learn

Tom Hulme (IDEO)

Wired Conference, London

13 October 2011

Tom Hulme (IDEO)

Speaker's notes

Hello.
My name's Tom Hulme and I work for IDEO. Before I worked at IDEO I did Physics then startups, here's my bio: http://www.ideo.com/people/tom-hulme
I'll share key links throughout this talk through my Twitter handle, @thulme

Technology, which underpins all of our lives, is accelerating.
To give a fitting example, given the terrible news last week, this is the Macintosh 128k, it was launched with one of the most iconic advertising campaigns of all time in 1984.
How many of these do you think you would need to match the processing power of an iPhone 4?

Or, sticking with the iPhone theme, it has more processing power than that of the whole of NASA when Buzz Aldrin was the first man to step on the moon's surface in 1969.
We have to use this power for more than whacking pigs with angry birds!

In the main we are, in part to power the iPhone's array of sensors.
In fact, many clever people think that current tech progress is outstripping Moore's law. (The idea that the number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every two years, this has held since 1965.)

We're creating more data and pushing it willingly and unwillingly into the world continuously, and once it's out there it's everywhere.
These are the social networks that I use, when I update one I essentially am updating them all - as a result, new ideas spread faster than ever.

And new ideas disappear faster too.
A few weeks ago bitly (the URL shortener) wrote an interesting post on the 'half life of a link online', on average it's about 3 hours.
For the recent earthquake in Washington after only 5 minutes this link had seen half of the clicks it would ever see. Cultural latency is approaching zero.

All these data trails and instant dissemination across the web place everything out in the open eventually-witness Wikileaks.
Even Apple, one of the most secretive companies in the world has had forthcoming products leaked, after all it's tough to design around the source of most security failures, people.

We need to design flexible systems that don't depend on any specific feature; after all any individual piece can be copied.
Every aspect, whether customer-facing or not is a design opportunity.
Alex Osterwalder has been leading the idea of visualizing business models over the last few years - check out his work at: http://thul.me/osCMhS

Visualizing business models reminds me that the beauty is in the interdependencies and that great companies such as Amazon innovate on every part. That makes them incredibly tough to copy.
If you're interested, I'll happily build out a presentation here outlining why Amazon is such a great example?

Amazon's Reverse Innovation approach delivers this.
Amazon starts every project by writing a press release to the end consumer; this forces articulation of the benefit.
Next step is writing FAQ, forcing articulation of concerns.
All this before a line of code is ever written.
Werner's blog entry describes this well: http://thul.me/roO35d

This approach can be comforting in this crazy world, because our needs remain the same.
Abraham Maslow, outlined our needs in the hierarchy of needs in a paper in 1943.
There's a reason that it's probably the most famous triangular framework still to this day, it still stands.

The mere fact that we're in this room means we're lucky enough to have the bottom two rungs taken care of.
We've probably all spent a lot of energy signaling belonging, sometimes taking extreme measures.

But technology provides us new ways to signal our belonging.
One of the most basic forms is simply 'liking' stuff in Facebook, that's one of the 'needs' that 3% of FB users were meeting by 'liking' Obama's page.
Technology is empowering us to meet long held needs in new ways.

It's horribly unscientific, but Google Trends is a quick way to assess what needs we're all trying to meet, the top chart shows that we've all been searching for "How to" do stuff far more than searching for "Sales".
The bottom chart shows us that's not what media has been giving us over the same period.

And the unanswered questions invariably span the whole business model.
To make it even more difficult many of them are interdependent, for example changing the offer will always change the optimum pricing, or even the right team.

The recent Startup Genome Project, which audited 3200 startups globally, demonstrated that the most common failure in startups is premature scaling.
This is growth prior to the startup resolving enough of its pressing questions.
View the report here: http://thul.me/nwBp1R

Instead of blindly aiming for growth, the best founders understand their big questions, and prioritise the order in which they ask and answer them.
I was reminded how much this approach is like the scientific method by Eric Ries' wonderful work around Lean Startups: http://thul.me/o0vzVE

The scientific method teaches us that great experiments have specific characteristics...
They're designed to test a specific hypothesis,
They're important, i.e. the results are likely to really create impact
And they're feasible, i.e. they yield actionable results.

So, with this in mind, is a business plan a good experiment?
Nope, because it doesn't tell you if you have a great business.
It is neither accurate nor efficient.
As Steve Blank says "the answer is not in the building".

The good news is that authors seem to be taking heed, by now the references of 'business model' in books that Google has indexed has probably finally outstripped 'business plans'.
That's something to be celebrated.

We believe that every part of a business plan can be launched to learn, both consumer facing or not.
This is more than just creating MVPs, it's about creating Minimum Viable Experiments
I'd love to use our remaining time to share some examples I find inspiring.

Zynga, the social games developer, prioritises new game concepts by creating a five-word pitch for each and advertising them to relevant users on high-traffic websites. If the pitch is clicked on, the user is diverted to a survey that harvests e-mails and additional information.
This approach, which it calls 'ghetto testing,' validates the market before a line of code is ever written.

Amazon Kindle launched lending as a feature on December 30, 2010, mainly to compete with a feature already in place with the Barnes and Noble Nook.
Within a couple of weeks, Catherine MacDonald from here in the UK launched a Facebook Group, believing there was an opportunity to match lenders and borrowers.
Interest in the group exploded, and MacDonald realized that Facebook just didn't offer the scalability needed for such an undertaking. She had validated the market need.

Less than two weeks later, MacDonald had pulled together $12,500 in angel investment and a development team, to launch the Kindle Lending Club (rebranded Booklending.com more recently because of copyright laws).
The Facebook page had proven itself to be a great customer acquisition tool so remains up, and has over 30k likes.

In both these cases real people give real expressions of interest.
This is not the case with the current trend of gaining signups without telling users your value proposition, that's just noise.
Too many startups mistake people signing up for an ambiguous offer as a commitment to purchase.

When Tim Ferriss was launching his latest self-help book he struggled to name it. He took 6 prospective titles and developed a Google Adwords campaign for each, serving ads when users searched for relevant words like '401k' and 'language learning'. Within a week, for less than $200 he knew that "The 4-Hour Workweek" had the best click-through rate by far and he went with that title.
His experimentation didn't stop there, he decided to test various covers for the book by placing them on similar sized books in the new non-fiction rack at Borders, Palo Alto. He sat with a coffee and observed, learning which cover was most appealing.

IDEO alum, Scott Wilson took this one step further.
He had a hypothesis that the Nano would make a great watch but didn't know whether enough potential customers would agree. To test market appetite he placed a short video describing his idea on Kickstarter.com, asking people to make contributions ranging from $1 and $500. Scott's goal was to raise $15K from these commitments but instead he raised just under $1M in less than 30 days.

Big companies can benefit too. For example, when Intuit wanted to create a text message marketplace to help Indian farmers reduce waste produce, it wanted real market feedback. Instead of spending months building the complex technology behind the trading platform, the company launched a prototype direct to farmers in just seven weeks. In place of the back-end technology, the trades were fulfilled by the project team themselves. They called this a 'fako back end'.

It can even make sense to launch to build capabilities.
When launching moneylending site Wonga Errol Damelin had a hypothesis he would be able to predict chances of repayment by analyzing datapoints online.
Instead of theorizing behind closed doors Errol chose to disburse money and accumulate facts, it's now rumored to be the fastest growing company in Europe.